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Jarring stock market volatility has been a blunt reminder of the risks in retirement portfolios, and investors are understandably concerned. Many are second-guessing strategies that fattened their nest eggs in recent years and have fled to safety in money-market funds, which had their best monthly inflows in December since 2008.

If recent volatility proves to be the precursor of a market dive, then those fleeing to safety will look smart. But just as no one rings a bell at the top, no bells ring at the bottom, either. Selling off investments during gyrating markets can result in unrecoverable setbacks in portfolio value. In search of more nuanced advice for managing your portfolio through volatile times, we turned to leading financial advisors for guidance. They shared their views on 2019 and recommendations for keeping portfolios on track.

Favor stocks over bonds

Trouble spots in the U.S. and global economies — ranging from rising interest rates to the trade standoff with China — are likely to fuel investor uncertainty and cause higher than average volatility through 2019, advisors say. But barring major missteps by policy makers, advisors are generally optimistic that the U.S. economy will grow this year, albeit at a slower pace of 1.5% to 2%, compared with 2018’s 2.9%.

Meanwhile, the S&P 500 index’s (.SPX) riotous decline in December — the worst monthly pullback since 1931 — was a welcome reset for valuations, says Spuds Powell, managing director of Los Angeles advisory firm Kayne Anderson Rudnick Wealth Advisors. “Lower than long-term average equity valuations combined with some evidence that we’re closer to an agreement with China on trade, and evidence that the Federal Reserve will be more reasonable and patient with rate hikes, present a relatively positive outlook,” he says.

This all bodes well for an overall overweight position to stocks. Still, it’s important to set realistic expectations: Stocks have delivered blistering average annual returns of 12% since 2008, and investors should not base their retirement plan on a repeat performance over the next decade. Advisors we spoke to expect that selective investing, rather than hugging indexes, will be rewarded.

Smarten up U.S. stock holdings

Big companies powered the 10-year bull market, meaning that many portfolios have heavy exposure to U.S. large-cap stocks. It’s time to trim those large-caps and boost holdings of potentially higher-growth domestic small- and mid-caps, says Richard Saperstein, managing director of New York–based Treasury Partners.

“Small- and mid-caps will continue to benefit from tax reform and the underlying strength of the U.S. economy, and they have the added benefit of being less impacted by tariffs,” Saperstein says. He recommends iShares Core S&P Small Cap exchange-traded fund (IJR), Virtus KAR Small-Cap Growth (PXSGX), and Virtus KAR Small-Cap Value (PXQSX).

Keep your portfolio on track

Within big-company stocks, expect divergent performance, with cash-rich companies rising to the top and debt-laden businesses seriously trailing. So, rather than leaving your fate to a broad index, position your holdings with clear goals. For defensive-minded investors, Valerie Newell, senior wealth advisor at Mariner Wealth Advisors in Cincinnati, likes companies with healthy dividends and superior dividend growth, such as UnitedHealth Group (UNH) and Becton Dickinson (BDX). “They preserve capital and go down less in challenging markets,” Newell says.

For zip, Newell likes cyclical stocks such as Boeing (BA) and truck carrier Knight-Swift Transportation Holdings (KNX), which do well when economic growth is being underestimated. Also consider companies that capitalize on secular, innovative growth opportunities and have earnings-per-share growth rates at least 150% higher than S&P 500’s. “Salesforce (CRM) and Visa (V) have growth rates two to four times that of the S&P 500, with outstanding business models, brands, and catalysts,” Newell says.

Be selective overseas

Advisors continue to favor U.S. stocks over international, but some of them recommend shifting some assets from slower-growth European stocks to emerging markets. Stocks in both are trading at 17% discounts to historical valuations, but emerging markets — particularly in Asia — have better earnings and overall profit growth, says Jason Pride, managing director and chief investment officer of private wealth at Glenmede. “Meanwhile, in Europe you see Brexit, in-fighting among European Union members, and unhealthy debt dynamics.”

Brace for extreme volatility in emerging markets, cautions Michael Chasnoff, CEO of Truepoint Wealth Counsel in Cincinnati. Consider that after returning 80% in two years through January 2018, emerging market stocks cratered 16% last year as the U.S. dollar strengthened and trade tensions grew.

Balance risk

Size up your portfolio’s risk allocation. A 60/40 stock/bond portfolio with emerging markets exposure and high-yield bonds is going to have a very different risk profile than one with blue-chip stocks and Treasury bonds. In your stock bucket, if you add emerging market stocks, consider paring back risk in U.S. stocks by adding more dividend payers, Pride says.

If your overall stock allocation is higher than usual, use fixed income as a pure safety play rather than chasing high-yield bonds. “We have risk in the market, so we’re not going to have risk in bonds right now,” Kaplan says. “We’re talking insured municipal bonds or triple-A rated corporates with durations of five years or less.”

Callable municipal bonds are particularly attractive as a safe, tactical play, Saperstein says. On a 20-year muni callable in three to five years, “we can earn anywhere from a 2.7% to 3.1% tax-free yield,” he says. “If they’re not called, the yield is around 4.5% tax free. Heads you win; tails you win.”

Kevin Grimes, president and chief investment officer of Grimes & Co., in Westborough, Mass., says that cash is nothing to scoff at as an asset class these days. It’s earning more than 2%, and a small allocation not only dampens volatility but also provides flexibility to rebalance portfolios and buy on dips. “You don’t want to base your retirement on market timing,” Grimes says. But when rebalancing your portfolio, “volatility is your friend.”

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